BSP policy tightening to cap profits – HSBC

The tightening of the central bank’s monetary policy is likely to weigh down corporate earnings in the months ahead, leading to a moderation of economic growth, although the Philippines will remain a bright spot in Emerging Asia, global bank HSBC said in a forecast.

The Philippines continues to offer premium to investors in terms of its positive growth outlook for the long term, but immediate prospects are constrained by inadequate infrastructure to support a growing population and increasing incomes, the bank said.

“The Philippines will grow at a similar pace and continue to be the bright spot in Emerging Asia because of its favorable demographics, steady levels of remittances, and prudent fiscal and monetary policy,” HSBC said in its latest statement on the Philippines.

However, it added that significant challenges stand in the way of sustained rapid economic growth, referring to the country’s infrastructure being “currently inadequate to support a booming population and rising incomes.”

“HSBC believes that the equity market is currently overvalued, with near-term challenges not fully priced in, and thus, does not present opportunities to investors, despite [the fact]part of the premium is justifiable due to positive growth outlook over the long term,” it said.

At its October 23 meeting, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to keep its existing rates for overnight borrowing and lending, and the special deposit account (SDA), as well as the reserve requirement ratio (RRR) for banks.

The rate for overnight borrowing, or reverse repurchase facility, currently stands at 4.0 percent and the rate for overnight lending, or repurchase facility, at 6.0 percent. The interest rate for SDA is unchanged at 2.50 percent, and the banks’ RRR at 20 percent.

HSBC predicted earlier that the Philippine economy may slip off the government’s target range of 6.5 percent to 7.5 percent for this year, with GDP seen growing only by 5.9 percent on the back of lower exports and slow government spending.